‘Cement is less than 20% of building cost’

The high cost of cement remains a huge problem, which seems to have defied solution. Reason: the country’s cement production capacity outweighs its demand. “I wouldn’t want to go into that…there is an emotional part of it and we tend to be emotional,” says the Chief Executive Officer of AshakaCem Plc, Rabiu Umar, in an interview with reporters during a tour of the company in Gombe State. He speaks on other issues, including the task of keeping the company afloat and its corporate social responsibility cases. MUYIWA LUCAS was there.

Many people think the price of cement is high, considering that Nigeria produces more of the product than it needs. What’s your take on this?

I wouldn’t want to go into that. It is very controversial because there is an emotional part of it and the real part of it. And typically, we tend to be more emotional. I don’t want to go into details but it is not quite true that all our raw materials are locally sourced. You can find out how much cement is in Chad and Niger in dollar and make the comparison.

The price of cement is usually blamed for the prohibitive cost of housing. To what extent will you say cement influences housing affordability?

Cement is less than 20 per cent of the total cost of building construction. So, you may want to ask what is the correlation between cement and the cost of building. The global average is six per cent; this is a verifiable and scientific information. Depending on the building practices, for instance, not everyone uses hollow blocks, some use the formwork. That way, there is a lot of saving. So, there are a lot of building practices that help to bring down price but when you look at the price of blocks and cement, the global average is six per cent. In Nigeria, it may be seven per cent but I don’t think it is up to eight per cent. Typically, people think if the price of cement is half of what it is today, it increases affordability or the number of people that can afford to build their own homes. In a sense, you can say yes, but it is only six per cent. The rest of the 94 per cent is in the finishing. You can build and finish the carcass of your building and you are just 30 per cent of the way including the concrete, beam and all. You find out that the cost of one door will probably build the walls. That is where most of the cost goes.

How are government policies impacting on your business?

I think there are two levels to it. Government policies in a sense have helped us to operate because without a framework, you cannot run. But is there room for improvement? Of course, there is. One of the key things that are really confusing is multiple taxation. There is the federal, state and local government tax regimes. And sometimes, when you stack up everything, it is a bit confusing to understand at what level it stops. Multiple taxation is one of the key drivers of business that every business owner talks about in the country. It also brings about uncertainty; you plan something you want to do this year and suddenly, something comes up that is not in your plan but can have an impact on your planning and result.

What does the cement industry contribute to GDP?

It depends on the level you take it from but between N18 and N20 billion a year, depends on the demand. It was a little higher the previous years but it dropped.

How did the lull in the property market affect cement sales during recession?

First of all, Nigeria went into recession and anybody who lives in Nigeria knows the impact. The cost of anything that has any correlation with foreign exchange has doubled. That is a reality. The income left after taking care of basic needs has gone down, and naturally, there is no way it won’t have an impact on certain sectors that are not immediate, like food. And then of course, the economic situation means that the market is not growing as fast as expected and I think that’s a publicly available information.

How do you control your operations so that it doesn’t impact negatively on the environment?

Cement business involves extracting things from the ground, but at the same time, we have a standard. LafargeHolcim has the largest building materials business in the world. Our policy is that if a country we are operating in has a lower operating standard than the one set by the company, then our company standard becomes what we use, and vice versa. So at any point in time, we make sure we are well within the standard that each location has. We have a very high standard; there are different regulatory agencies that we work with- the Ministry of the Environment, National Environmental Standards and Regulations Enforcement Agency (NESREA) and several others. The key concern here is the dust emissions and when it comes to coal, there is the acidity issue. And of course, before you even get licence to operate there must be an environmental management plan in place. But beyond that we make sure we have an improvement plan. For instance, a few years ago, you know you are approaching AshakaCem when you find dusts on vehicles along the way, but today, that is not the case. It has reduced and we have the number to show for it. We hosted the former minister of environment sometimes ago to see what we are doing. Of course, there is always room for improvement but the most important thing is to ensure that the dust emission is lower than the limits set by the environmental plan.

Lafarge has some affordable housing interventions in the Southern part of the country. What similar initiative do you have in the north?

It is a national programme, not specific to any region. We are in the process of developing one in this region. Affordable housing comes in different shapes and forms. For instance, you may want to build houses in large scale. So, there is affordable housing and there is mass housing. So mass housing may not be the bottom of the pyramid but it allows more people to really have access to housing. And how does it work? You’re building this same structure in a thousand places and instead of using blocks you can use what we call the form work which is one of the things we are working on. We have done one in Ogun State, and we are taking people from the north to see how it works because the idea is to copy the model and ensure we can do it quickly and in a cost-efficient way.

How are you coping with competition in the industry?

The main thing we do is to focus on the customer and make sure we give them what they want. At the end of the day, cement goes everywhere. In reality, there is more than the demand but we are focused on making sure that our product does what it says it does. It is not about the technical aspect because at the end of the day, the customer can measure what he got from the product. Our focus is on making sure we are close to the customer and that we are giving him what he really needs. For instance, a blockmaker wants to work quickly and in as little time as possible, take the block and reuse the same wooden palette. So today, we have a particular product designed for that, it is called Superset; it is the fastest setting cement in the country and it means that segment will have preference. If you meet the big contractors, their needs are different from the regular trader who buys cement and resells. So, what we try to do is make sure we work with them from the beginning of a project to know what their needs are and I think that has worked for us thus far.

How were you able to continue running your business at the height of Boko Haram hostilities in the North East?

On November 4, 2014, our plant was attacked by the insurgents. Obviously, they were trying to find explosives. Exactly one month after that, there was another attack. Of course the default thinking was for the company to shut down during that period until things calmed down, but the management of LafargeHolcim took a decision to keep it open because as you may know, stopping and starting an operation of this magnitude is not really a day’s job. We have staff of 700 people working here and we live in a place that is more or less like an island. So, even if we shut down the operations, the staff are still here; you can’t have 700 people suddenly pack their bags to go somewhere. Therefore, a decision was reached at a significant financial expense to keep the plant running and I think it was the right decision. It has shown that we have the resilience when it comes to keeping our operations running.

Looking at the post-insurgent era, how are you contributing to the redevelopment of the Northeast region?

To start with, we make cement and most of the destructions in the area were civil in nature- if you take out the psychological and socio-economic aspects. So, naturally, we are contributing in that regard. If you remember, there were more than two million people who were displaced by the insurgency and by virtue of keeping this operation running, we are helping to make sure there is enough economic activity in the area. Like I said, there are 700 people working here directly and probably another 2,000 people who do supply and other things. The average household in this part of the country is 10; so you can imagine what the company has done. A more direct approach is helping the communities acquire skills that can be useful in terms of social services and healthcare as well as education.

In specific terms, how have you impacted on this community?

We have an artisanship scheme, for example, that has intakes from the communities around here, and it is strictly created for them. Graduates of this scheme go on to set up their businesses. If you are a carpenter or a mason, we train you and you get the tools of the trade and can go into the community to start. At the same time, we absorb some of them into our firm. For instance, the second most senior person here on the industrial side, after the plant manager, is an indigene of Bajoga, (our host local government), who came through the artisanship programme- we took him to South Africa and also our sister plant in Calabar, Cross-River state, as the second most senior person there. Let me clarify that we look at our contribution from the perspective of our operations rather than direct interventions. We have built classrooms, boreholes and a lot of things but we call those “business as usual” because they are basic things that we do. Building classrooms doesn’t mean that education will happen, so we do more sustainable activities in that regard.

How else do you give back to the community?

Giving back to the community comes in different forms and sizes. For instance, the focus we have as a company worldwide is healthcare, youth empowerment and education. These are things that everywhere you go in the LafargeHolcim world, though the style of implementation may differ, but these are the three core things. When it comes to healthcare, for instance, I can say directly, today on a daily basis we have a clinic that treats over 200 people from this community, every single day. Both consultation and drugs are free; it is one of the things we believe is important. In terms of youth empowerment and employment, we have in excess of 2,000 graduates since the beginning of the artisanship programme and every year, we keep taking them and we pay them for the two years that they are here on the programme. Over 90 per cent of the beneficiaries are of northern stock- 70 per cent are from the Northeast region. Gombe state indigenes account for 56 per cent of our staff strength, while most of the others are from communities around us. And when you look at education, we have two schools right inside AshakaCem premises and they have over 1000 students and 60 per cent of them are from the community and they don’t pay school fees. I think also beyond how much money we give the youths, there are also other exchange programmes that we have. A Polytechnic is about to start at Bajoga, the reason for citing the school there is because AshakaCem exists here. Polytechnics produce hands-on people, the plan is that we will partner with the school to do a lot of exchange programmes.

Sometime last year, you singed MoU with some communities. How far have you gone with the implementation of that agreement?

The implementation is ongoing. We ran into some misunderstanding. Everywhere you operate a mining activity, you must have a community development agreement which defines the basics of what you must do; but you don’t limit yourself to only what is in the agreement. We ran into some hitches but the agreement is being implemented while we are trying to do more. It is not everything we do that is in black and white. The medical thing I talked about earlier is not part of the plan but we do it. The MoU contains a five-year programme, but what we try to do is make sure that whatever we want to do within a year, we do it before the year runs out so that the community can start enjoying the benefit.

This community is largely agrarian. Do you have plans to empower the community through farming as some sort of CSR?

Absolutely! This is one project that we are doing; it is at the starting phase. We are starting an agricultural programme called Agri-ecology; it is all about mixed breeding- where one crop fights the pest of the other, for instance, leading to the creation of a high yield. It is also about taking the ecology of agric process back to its natural way. So, we are going to roll that out to empower our communities and help increase their yield by up to 30 or 40 per cent. It means they can generate more revenue from one piece of land. The other side of it is that it will help them to organise better distribution in terms of what they get from the produce. There has always been the issue of farmers not getting value for their labour, so, we are doing this to help them to get more value from their farming activities and turn it to an all year round thing. We are starting the pilot scheme this year with tomatoes because we hope to start with cash crops. The farmers won’t have to just wait for the rain. That’s what we are working on. The second part of this scheme is linked to how we help control our carbon dioxide (CO2) emission. The Federal Government tries to encourage rice farming everywhere, so the rice husk, a by-product of rice processing can be used in our kiln. We call it geo-cycle. The idea is to take corn cubs and the rice husks to produce clean energy and at the same time clean the environment. The producer doesn’t go to the farm to produce rice husks or corn cubs but at the end of the day he makes more money in addition to what he makes from the produce because we buy it off him.

What short term plans do you have to keep your customers in business?

It goes back to what I said, it is basically the promise that the products will deliver. We get feedback from our consumers and work on that. That is what we do everyday; making sure they remain in business because that also helps us to remain in business.

Five years from now where do you see Ashaka Cement Plc in terms of expansion?

Where we see AshakaCem is as a more efficient business in the next five years and one of which is from the cost perspective. There is currently a project ongoing, we are building a power plant to be able to generate our own electricity. Today, we are relying on generators, and as you know, the cost of fuel whether low pour fuel oil (LPFO) or diesel is very high and has a high correlation to foreign exchange. We are building an N11billion, 16-megawatt coal-fired power plant to cater for our needs. That is one of the biggest plan that we have in terms of being able to reduce our costs because one of the biggest cost in cement production is the cost of energy. Inside the kiln, we have temperature running up to 1,400 degrees which is heat temperature required to melt steel. You can imagine the kind of heat we are talking about here and to generate that kind of heat, we need fuel. The second is to unlock some of the existing potential in terms of capacity, over the years, you lose some efficiency and we are trying to gain back that efficiency. The other is, depending on how things go, we intend to increase the capacity of the plant by building new capacity.